One of the things I find puzzling is that not only do conservatives tend to think their narrow construction of the US Constitution’s “commerce clause” is correct, but they seem universally convinced that it’s obviously correct and that liberal efforts to construe it as authorizing broad economic regulation are clearly bad faith. From my part, it’s just the reverse. I can totally see why reasonable people disagree as to what the 2nd Amendment is saying, but read through the Constitution’s list of congressional powers of economic regulation:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

To establish Post Offices and Post Roads;

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

[stuff about the military]

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

You often hear the phrase “interstate commerce” used in discussion of these issues, but it literally does not appear in the constitution. This reads to me like a laundry list of items aimed at establishing a federal government with comprehensive responsibility for the national economy. If you want to say that in the 1790 context a lot of people were engaged in purely local agricultural context and that sort of thing isn’t covered by this, then perhaps that’s fair enough, but basically none of the modern economy has that character.

If you want to be silly, you could try to say that all this doesn’t mean the federal government can issue paper money—coins only!—but that’s a goofy way to deal with old-fashioned phrasing in a legal document. The phrase “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes” is 18th century-ese for “regulate the economy.”

Spencer Ackerman’s writeup of Admiral Dennis Blair’s departure as Director of National Intelligence includes a very perceptive 2007 quote from former intelligence analyst Robert Hutchings about the inherently problematic nature of intelligence coordination. He says it’s a pernicious myth to believe

[T]hat it is somehow possible to “coordinate” the work of hundreds of thousands of people across dozens of agencies operating in nearly every country of the world. Anyone who has worked in complex organizations knows, or should know, that it is possible to coordinate only a few select activities and that there are always tradeoffs, because every time you coordinate some activities you are simultaneously weakening coordination among others. To cite just one example, the creation of the National Counterterrorism Center may have enhanced interagency coordination among terrorist operators, which is a good thing, but it has surely weakened coordination between them and the country and regional experts. The net result is that the Intelligence Community is probably stronger in tactical counter- terrorist coordination but is surely weaker in strategic counterterrorism. While we are looking for the next car bomb, we may be missing the next generation of terrorist threats.

Right. A given set of individuals has only so much time and bandwidth. He can’t spend all day coordinating with everyone about anything if he’s ever going to do something. So when you tell John to coordinate more with Jane, he has to coordinate less with Mary. What’s needed is a combination of reasonable expectations and priority-setting, not the knee-jerk impulse to label every bad occurrence as a “failure.” To focus on some things, you have to not focus on some other things.

(my cc photo)

Steven Pearlstein has an excellent column noting that though Greece is to blame for Greece’s structural fiscal and economic problems, the larger story of Club Med economic woes is substantially made in Germany as a result of unsustainable policy choices. A choice graf:

While European governments surely have long-term structural budget problems, the immediate fiscal challenge comes from the decline in tax revenues and the increase in transfer payments that result from slow growth and high unemployment. The right policy response to that — along with the very real threat of price deflation in Europe — isn’t to put the entire continent in a fiscal straitjacket that makes the recession even worse. The immediate need is for the European Central Bank to deliver additional monetary stimulus in the form of lower interest rates and direct purchases of government bonds. The reality is that the price of avoiding a dangerous deflationary spiral in Greece and Spain is allowing inflation in Germany to rise to 3 or 4 percent.

To critique the column slightly, however, Pearlstein writes that “Germans, by their nature, are eager to save and reluctant to spend their newfound wealth on imported goods and services” which I doubt is the whole story. As is typically the case, there’s also a lot of interest group politics at play. Manufacturers of tradable goods constitute a powerful lobby that both benefits from Germany’s export-oriented economy and also encourages the German population to think of export-orientation as an expression of admirable aspects of German character rather than deliberate policy choices.

Interestingly, in a recent FT interview Germany’s finance minister appeared to acknowledge all of this and called for much closer “political union” for the EU that “naturally means a bit of federalism in the German sense of federal.” I didn’t initially understand what the reference to a “German sense of federal” meant, I’m told this is probably a reference to Germany’s tradition of explicit transfers from richer to poorer states. And, indeed, this is what Wolfgang Schauble seems to be saying:

“Germany has a lot of experience with federalism, more than the UK or France. If you want to create a federal organisation, you must be ready to have a certain amount of redistribution within it. You can dismiss that by rudely calling it a ‘transfer union’. But strong and weaker states both have their responsibility. We are asking a lot of the weaker ones, but the strong also have their responsibility, and we must explain that as well.”

I think that’s correct, but German public opinion and the actual policies of the German government don’t appear to be trending in that direction.

Edmund Andrews who used to cover these issues for the New York Times and now is at the Fiscal Times and blogging at Capital Gains and Games says it’s very good indeed:

Against that backdrop, it’s astonishing that the Senate bill actually became stronger as the process dragged on. The proposed consumer financial protection agency is stronger and I believe more independent than it would have been in the original Senate bill (more on that in a moment). The multi-trillion market in financial derivatives, which is almost unregulated right now, would for the most part have to be take place on exchanges or at least through clearinghouses — either of which require greater transparency and more pfront capital by the players. Banks, whose deposits are federally insured, would be prohibited from trading derivatives. And as an added surprise bonus, from none other that freshman Senator Al Franken, the bill includes a very smart reform to fix the corrupt busines model of credit-rating agencies.

You can argue that some of these reforms will backfire, and some probably will. But you cannot argue that the reforms amount to little or nothing. These are big changes.

He then goes on to quote Heather Booth of Americans for Financial Reform—the main labor and community group backed progressive lobby on this—who is likewise enthusiastic.

What I would say is this. The bill contains a number of provisions that make large bank failures less likely. It also contains provisions that make it less likely that a bank failure would cause a systemic meltdown. And on top of that it contains a much-improved process for dealing with bank failures, making it much less likely that a failure will lead to a politically toxic and massively unfair TARP-style “bailout.” It’s not airtight on any of those fronts, but it makes headway and when you combine it all together it’s a big impact.

That said, the financial crisis has also raised a lot of questions in people’s minds about the role of finance in the US and global economies. And the bill doesn’t do anything at all about those issues. Near the end of her book, Gillian Tett laments that “in the last two decades, as finance spun so out of control, it stopped being a servant of the economy but became its master” and to whatever extent that was true when she wrote it, it’ll still be true after Barack Obama signs this legislation. And that will be the case for all plausible values of “this legislation”—you can mix and match House and Senate provisions any way you like and nothing about the structure of the industry and the U.S. economy will be fundamentally altered.

As I wrote reviewing Tett I think it would actually be a mistake to try to address this point via the financial regulation process. But I also think it would be a shame to simply let it drop. The answer, it seems to me, is actually quite simple—higher taxes to finance more and better public services.